Wal-Mart And The Cost Of Life (Cereal, That Is)

Before I moved from Birmingham to Philadelphia, I expected certain things to cost more – particularly items with large local labor components (day care, for example) – and others to cost the same. For example, I figured that clothes at the Gap and food from the supermarket would be roughly the same price. But the upward spike in supermarket food costs (and the downward spiral in the quality of the shopping experience) have really been striking.

Local labor costs may be embedded in supermarket prices to a substantial degree. I suspect that union workers are checking me out in Philly, while the Alabama staff at Publix or Brunos were probably not organized. And real estate is surely pricier here. But I’m starting to suspect that the big difference is market pressure. The existence of Super Wal-Mart food shopping (and to a lesser, but substantial extent, Super Target food markets) creates clear market segmentation. If you want food at low prices, you leave supermarket chains entirely and shop at the Super stores. On the other hand, when you want a pleasant shopping experience, the middle to upper end large chains (think Publix) deliver a far nicer experience than any place I’ve shopped in Philly. Remarkably, though Publix was distinctly pricier than Wal-Mart and Target, on most food items, it was still cheaper on many items than all the markets in Philly. And Publix stores were consistently nicer than any supermarkets I’m finding in the Philly area.

Life cereal has been a litmus test for me. At Wal-Mart and Target, a 21 ounce box typically costs between $2.50 and $2.80, not on sale. At Publix, a 15 ounce box might run $4.50 or so – substantially more. But at Genuardis here in Philly (owned by Safeway), you might pay as much as $5 for that box. Starbucks coffee follows a similar pattern: $7 at Target, $8 at Brunos in Alabama, and $10 at Acme in Philly. (Warning: all these prices are rough, based on memory.)

What gives? My guess is that in a world without Wal-Mart, there is less of a market divide between “fancy” shoppers who demand a nice store and “value shoppers” who will ignore a little dirt and clutter. The result: fewer nice stores, less competitive prices. Everything is kinda mediocre. In a world with Wal-Mart, even the fancy Publix stores feel serious price pressure. Charge too much and even the BMW drivers will head to the Super Store. At the same time, Publix builds destination stores that leave you happy to drop an extra few dollars at the register. I’m not making the case for Wal-Mart as the best thing since sliced bread. I see the various social problems caused, directly and indirectly, by the retail titan. But I also see the consumer side. If everyone pays a little less for food in a Wal-Mart world, and poorer people are able to pay signficantly less, that’s a social benefit that can’t be ignored.